Court Reaffirms Reach of Vexatious Refusal to Pay Statute

ABSTRACT: A Missouri Uninsured Motorist case tried and appealed, stands as a cautionary tale to insurers that their investigations into and evaluations of claims must be fair, thorough and reasonable.

On June 26, 2011, Farzad Qureshi was rear-ended by a hit and run driver while traveling westbound on Interstate 270 in Ferguson, Missouri. Mr. Qureshi filed a claim with his insurance company, American Family, the following day reporting back, neck and head injuries. He provided American Family the license plate number of the other driver, but they could not locate the driver or the owner. Thereafter, without advising him about his Uninsured Motorists (“UM”) benefits, American Family told Mr. Qureshi it would be closing his file.

Nevertheless, Mr. Qureshi repeatedly updated American Family regarding his treatment, instead of accepting the claim denial. And, after treating for years and receiving a surgery recommendation estimated at approximately $200,000, he made a UM policy limits demand through his attorney for $75,000. Ultimately, after being provided all his medical and employment records, American Family made a $20,000 counteroffer, which Mr. Qureshi rejected as insufficient. Thereafter, he filed suit against American Family for (1) breaching the UM provision of his insurance policy and (2) vexatious refusal to pay pursuant to §375.420, RSMo., asserting that American Family, without reasonable cause or excuse, refused to pay him the available UM limits.

After a three-day jury trial, the court entered judgment on the jury’s verdict in favor of Mr. Qureshi for $75,000 on his UM claim, $18,000 in penalties on his §375.420 vexatious refusal to pay the claim, in addition to awarding $96,828 in attorney’s fees. American Family appealed.

On appeal in the Missouri Court of Appeals, Eastern District, American Family claimed there was insufficient evidence to support the jury’s finding of vexatious refusal to pay under § 375.420. American Family made evidentiary challenges stating that: (1) the trial court erred in admitting its corporate representative’s testimony (2) the trial court erred in admitting evidence of its coverage limits of the policies and the settlement offers and demands exchanged between Mr. Qureshi and American Family while the suit was pending, and (3) the trial court erred in permitting Mr. Qureshi’s expert witness to opine that American Family vexatiously handled Qureshi’s UM claim.

The Court of Appeals affirmed the trial court judgment in Mr. Qureshi’s favor finding that when Mr. Qureshi made reasonable demands during settlement negotiations, his demands went unanswered by American Family, and ultimately resulted in a low-ball settlement offer. Unfortunately for American Family, its refusal to pay or offer a reasonable amount during settlement negotiations was presented to the jury and admitted into evidence.

The appellate court reiterated the breadth of §375.420 noting that the evidence that American Family sought to omit from trial was admissible to prove vexatious refusal to pay under §375.420. In other words, §375.420 allows a jury to consider all evidence, testimony, circumstances and facts that an insurer had up until trial for purposes of determining whether an insurer accepted reasonably in denying or failing to pay a claim. Under §375.420’s standards, the jury need only find (a) that Mr. Qureshi had an insurance policy with American Family, (b) that American Family refused to pay his losses, and (c) that American Family’s refusal was without reasonable cause or excuse.

In three other ancillary issues, the court held that the excerpts of deposition testimony of two claims adjusters of American Family who were assigned to Mr. Qureshi’s claim were properly admitted into evidence to show vexatious refusal to pay citing Missouri law, which allows depositions to be used “for any purpose.” Moreover, the court decided that American Family’s low settlement offer, and Mr. Qureshi’s settlement demands, were properly admitted into evidence to show vexatious refusal to pay, a clear exception to the general rule that evidence of settlement negotiations are not admissible at trial.

Finally, the court confirmed that both the policy limits of UM coverage in his American Family policy and Mr. Qureshi’s expert’s testimony regarding American Family’s actions were properly admitted into evidence to show vexatious refusal to pay.

Qureshi stands as a cautionary tale to insurers that their investigations into and evaluations of claims must be fair, thorough and reasonable. Otherwise, §375.420 not only allows for damages and penalties but also attorney’s fees, which will almost assuredly be approved where the insured is successful.

* Kameron Fleming, Summer Law Clerk in the St. Louis office of Baker Sterchi, assisted in the research and drafting of this post. Fleming is a rising 3L student at the Washington University St. Louis School of Law.